09.10.2015Takeover - Foreign Investment and the Australian Psyche

Some things never change. One of the perennial features of Australia’s economic and political discourse is how to deal with foreign investment and ownership. Given Australia’s historical reliance on foreign capital to fund national development, this is more surprising than it might seem.

David Uren is one of Australia’s best economic commentators. His excellent analysis of Australian attitudes toward foreign investment in Takeover – Foreign Investment and the Australian Psyche explains how the frequently conflicting views of free traders and protectionists – whether on the political left or right – have shaped public policy.

The “national interest”, at least as far as economic policy is concerned, has always been a contested compromise and a consequence of the relative political influence of these domestic forces. This is an important conclusion that emerges from Uren’s detailed exploration of Australia’s economic history.

If there is one criticism to be made about the book it is that Uren is at times surprisingly reserved about spelling out the implications of his own analysis. Dispassionate disinterest has its merits, but it is somewhat surprising that someone whose day job is writing for The Australian is not more forceful in spelling out the book’s central argument about a liberal investment regime’s possible merits.

As it is, the book has a rather “academic” feel, at least as far as the content is concerned. One of its strengths is in making clear just what a long-standing part of Australia’s economic and political history anxiety about foreign investment actually is, and how this has shaped domestic political debates and attitudes.

As Uren points out, when Joe Hockey blocked the takeover of GrainCorp by the US multinational Archer Daniels Midland in 2013, he employed precisely the same sorts of arguments that were made to justify protectionism in the 1850s.

That the Abbott government could snub a company from the US – Australia’s closest strategic ally – is indicative of the domestic political sensitivity of foreign investment. It’s also a reminder of the Nationals’ enduring influence on trade and investment issues. The rise of China as Australia’s most important trading partner and a growing source of investment adds an additional layer of complexity to the task of deciding what’s in Australia’s supposed national interest.

In this context, at least, Uren is unambiguous. The way questions about the national interest are decided in relation to investment is “a travesty”, he argues, and “lacks transparency, predictability and accountability”. He is especially scathing about the way policy toward Chinese investment has been handled.

And yet, concerns about the nature of China’s form of “state capitalism” are not without foundation. Market forces and a concern about short-term profitability are not the sole determinant of investment decisions by state-owned enterprises. Even if such policies are ultimately misguided and destined to fail, it is important that other governments recognise their potential impact on economic and even strategic outcomes.

Uren gives this possibility short shrift. But even if he’s right about the largely beneficial impact of foreign investment, it might have been useful to give more consideration to the origins of inward capital flows.

It often does make a difference where it comes from, how foreign multinationals operate, and what their relationship is with their countries of origin. Japanese multinationals really did try to shape the resource trade in the 1980s and the possible implications of that experience have not been lost on China’s policymakers.

The key question Australian policymakers have to consider is about the long-term impact of investment decisions that are made elsewhere, but which ultimately help to determine the structure of the national economy. This is no easy task. Some observers think the national economy no longer actually exists as a discrete entity over which policymakers can exercise control.

But even if “globalisation” has transformed an increasingly integrated international economy, politics remains relentlessly local – and so do most people’s jobs.

So while Uren might be right to highlight the rent-seeking behaviour of foreign multinationals in the car industry, for example, the reality is that they provided relatively high-skill, well-paid jobs for many Australians – not to mention the backbone of a national manufacturing capacity.

The problem with letting footloose multinational capital make all the decisions about where investment occurs is that Australia may end up with an economy that is narrowly focused and overly reliant on activities that are prone to cyclical booms and busts. That is precisely where Australia finds itself.

If the national economic interest means anything, it must surely refer to policies and outcomes that benefit the majority of the population who live in a particular place.

It is already clear that the vast wealth generated by the resource boom was squandered. It is also evident that the effort to tax the primarily foreign companies that were the resource boom’s principal beneficiaries was, according to Uren:

… one of the greatest failures of public policy in the history of Australian government.

It is not necessary to agree with Uren’s concerns about the possibly negative impact of nationalist sentiment on investment policy and decisions to recognise that this book is a significant contribution to our understanding of why foreign investment remains a contentious area of public policy.

As no less a figure than Malcolm Turnbull declares on the back cover, the book:

… explains the lay of the land today.

Indeed it does, prime minister – even if the author could have been a bit more forthright about his conclusions.